Background issue at this yr’s Natl Conference of State Liquor Admins, annual confab that brings together state alc bev regulators and industry attys/govt affairs execs, was recent criticism of NCSLA in series of Texas Tribune articles that helped oust Texas ABC director (see Apr 6, 18 Expresses).  In those articles NCSLA bashed for holding mtgs in nice locales and perpetuating cozy relationship between alc bev industry and those charged with regulating it.  In opening remarks, current prexy Matt Botting (genl counsel for Calif ABC) welcomed colleagues/industry attendees and referenced effort by a “disgruntled ex-employee” and a “litigant” to “find scandal where there was none.”  (Texas ABC now defending state laws in handful of court cases, as we’ve reported.)  Matt also reiterated NCSLA’s mission and philosophy of educating regulators “in furtherance of effective alcohol policies” and promoting “meaningful and enlightened communication,” as well as maintaining “effective systems of beverage alcohol regulation.”  While some expected states might not participate in this yr’s mtg in wake of publicity surrounding Texas ABC, mtg had record attendance of near 400 and participation of 31 states, tho Tex ABC not present.  (Two other big states – NY and PA – also absent, but 31 is higher than avg.)

Presenting his 25th legal update, veteran alc bev atty Richard Blau opened and closed his comments by praising NCSLA as a “special place” and org that provides “special value” to both regulators and industry members via numerous panels that explore current legal, regulatory and enforcement issues. This year, programming centered on theme of how to regulate in “today’s dynamic marketplace.” Then there’s invaluable informal interactions that occur over several days.  Richard’s annual legal update provides no small part of that substance, and there was another specific and very timely example of NJ admin sharing how his state evaluates growing stream of apps out there adding to that dynamism.  But there’s plenty more from this and past yrs, as beer marketer’s INSIGHTS has reported over the yrs.  More to follow on substance of this yr’s mtg in next edition of beer marketer’s INSIGHTS.  

Another stunner of a ruling represents 2nd big win for status quo and states’ ability to regulate alc bevs in short order (following US Dist Court rejection of deregulation challenge in IL). Decision handed down today by 9th Circuit US Appeals Court in California affirms lower court’s decision in huge Retail Digital Network case. Recall, RDN challenged CA tied house law that prevents alc bev manufacturers and distribs from paying for ads at retailers on commercial free speech grounds. After some legal back-and-forth, 9th Circuit made rare decision that full panel of judges would reassess, underscoring case’s significance. Today, that panel, with lone dissenter, rejected RDN’s arguments that CA law doesn’t pass applicable level of scrutiny and should be struck down.

Law barring payments for ads at retailers, even if thru 3rd party like RDN, “serves the important and narrowly tailored function of preventing manufacturers and wholesalers from exerting undue and undetectable influence over retailers,” court wrote. “Without such a provision, retailers and wholesalers could side-step the triple-tiered distribution scheme by concealing illicit payments under the guise of ‘advertising’ payments,” it continued. Tho judges not impressed with piece of 30-yr-old ruling by same court that argued ad restrictions in tied house law somehow further state’s “interest in promoting temperance,” that “does not negate” prior ruling’s conclusion that law holds up.

Today’s decision likely to calm plenty of nerves in California and elsewhere.  This is “so big,” California Beer and Bev Dist Assn prexy Victoria Horton told INSIGHTS.  If decision had gone the other way, it “would have jeapordized tied house laws across the land,” she added.  Indeed, decision the other way, taken in tandem with other legislative efforts to introduce further tied house exceptions,  could have led to “complete evisceration of tied house,” Calif ABC atty Matt Botting said last Sep (speaking as private citizen). So that “evisceration” avoided with this ruling (at least for now).

At subsequent meeting of alc bev attys, Kentucky’s atty for state ABC floated possibility that “a judicial opinion” could affirm that there are “so many exceptions [to tied house law] that it’s not reasonable anymore” (see vol 18, no 175). Those comments also allude to what could have happened in this ruling. In fact, RDN argued exactly that “the numerous exceptions” to statute, “undermine its purpose,” as court summarized today. But “RDN fails to recognize that the exceptions do not apply to the vast majority of retailers, and they therefore have minimal effect on the overall scheme.” That applies specifically to statute barring payment for ads. However, folks concerned about further deterioration of 3-tier law due to exceptions created for small brewers in CA and elsewhere may also take solace in that language.

Notable too that court disagrees with prior ruling that ad restriction “directly and materially advances California’s interest in promoting temperance.” Gotta assume that promoting temperance is  “a substantial interest” for state in 1st place, judges note. But even if you do, statute “applies solely” to ads in retailers, “which comprises a small portion” of alc bev ads. Plus, since “it prohibits only paid advertisements” (ct’s emphasis), it doesn’t actually cut back on amount of alc bev ads consumers might see. Indeed, if state “sincerely wanted to materially reduce” amount of alc bev ads, “surely it could have devised a more direct method for doing so.” That reasoning seems to bolster skepticism about using “temperance” as primary defense of 3-tier regs. But ct’s rejection of RDN arguments on commercial free speech grounds are the far more significant ruling.  This decision represents  important victory for Calif state regulatory scheme, current tied house laws, distribs and craft brewers, at very least.    

Another stunner of a ruling represents 2nd big win for status quo and states’ ability to regulate alc bevs in short order (following US Dist Court rejection of deregulation challenge in IL). Decision handed down today by 9th Circuit US Appeals Court in California affirms lower court’s decision in huge Retail Digital Network case. Recall, RDN challenged CA tied house law that prevents alc bev manufacturers and distribs from paying for ads at retailers on commercial free speech grounds. After some legal back-and-forth, 9th Circuit made rare decision that full panel of judges would reassess, underscoring case’s significance. Today, that panel, with lone dissenter, rejected RDN’s arguments that CA law doesn’t pass applicable level of scrutiny and should be struck down.

Law barring payments for ads at retailers, even if thru 3rd party like RDN, “serves the important and narrowly tailored function of preventing manufacturers and wholesalers from exerting undue and undetectable influence over retailers,” court wrote. “Without such a provision, retailers and wholesalers could side-step the triple-tiered distribution scheme by concealing illicit payments under the guise of ‘advertising’ payments,” it continued. Tho judges not impressed with piece of 30-yr-old ruling by same court that argued ad restrictions in tied house law somehow further state’s “interest in promoting temperance,” that “does not negate” prior ruling’s conclusion that law holds up.

Today’s decision likely to calm plenty of nerves in California and elsewhere.  This is “so big,” California Beer and Bev Dist Assn prexy Victoria Horton told INSIGHTS.  If decision had gone the other way, it “would have jeapordized tied house laws across the land,” she added.  Indeed, decision the other way, taken in tandem with other legislative efforts to introduce further tied house exceptions,  could have led to “complete evisceration of tied house,” Calif ABC atty Matt Botting said last Sep (speaking as private citizen). So that “evisceration” avoided with this ruling (at least for now).

At subsequent meeting of alc bev attys, Kentucky’s atty for state ABC floated possibility that “a judicial opinion” could affirm that there are “so many exceptions [to tied house law] that it’s not reasonable anymore” (see vol 18, no 175). Those comments also allude to what could have happened in this ruling. In fact, RDN argued exactly that “the numerous exceptions” to statute, “undermine its purpose,” as court summarized today. But “RDN fails to recognize that the exceptions do not apply to the vast majority of retailers, and they therefore have minimal effect on the overall scheme.” That applies specifically to statute barring payment for ads. However, folks concerned about further deterioration of 3-tier law due to exceptions created for small brewers in CA and elsewhere may also take solace in that language.

Notable too that court disagrees with prior ruling that ad restriction “directly and materially advances California’s interest in promoting temperance.” Gotta assume that promoting temperance is  “a substantial interest” for state in 1st place, judges note. But even if you do, statute “applies solely” to ads in retailers, “which comprises a small portion” of alc bev ads. Plus, since “it prohibits only paid advertisements” (ct’s emphasis), it doesn’t actually cut back on amount of alc bev ads consumers might see. Indeed, if state “sincerely wanted to materially reduce” amount of alc bev ads, “surely it could have devised a more direct method for doing so.” That reasoning seems to bolster skepticism about using “temperance” as primary defense of 3-tier regs. But ct’s rejection of RDN arguments on commercial free speech grounds are the far more significant ruling.  This decision represents  important victory for Calif state regulatory scheme, current tied house laws, distribs and craft brewers, at very least.    

State alc bev regulators got rare perspective from industry economists at opening session of annual Natl Conference of State Liquor Admins on “state of the industry.”  Any negative trends within beer, wine and spirits mostly in background as words like “dynamic,” “premiumization” and “pro-consumer” tossed around by Beer Inst economist Michael Uhrich, Distilled Spirits Council economist David Ozgo, Wine Inst’s Steve Gross (more of a govt affairs guy) and consultant-economist John Dunham, who coordinated work on recent “Beer Serves America” report (see May 23 Express).  Indeed, Michael all but ignored mainstream beer’s recent woes and overall trend.  He focused instead on growth of above-premium segments, dollar growth and increase in number of breweries.  He even pointed to some “moderation in the declines” of mainstream/economy segments.  Steve claimed there’s “room for everyone to grow in wine,” and tho every coupla yrs there seems to be declaration of “end of the wine boom,” biz continues to grow.  Spirits, of course, enjoying “steady growth,” David pointed out, with multiple healthy segments, from bourbon to tequila.  John called biz “dynamic” and “pro-consumer,” offering “tremendous growth” in SKUs and product types.  

Michael and Steve said their respective bizzes in “transition,” with Michael pointing to challenges faced by some regional craft players now in a “pinch” between big brewer craft brands and smaller, local players.  He sees oppy for more partnering of regional players with strengths in different geographies.  Transition in wine more about new varietals coming in, more experimentation, more willingness to try wines from different places and packaging innovation (cans/boxes).  Lotsa talk about “craft,” natch.  None of these observers willing to opine that craft has “peaked,” tho they see more competitive mkt and consolidation coming. John tersely dealt with definitional difficulty, declaring craft not “an economic, business or legal term,” but a “marketing” term.  “If it works, great.”

Coupla Clouds and Concerns On Horizon; Weak Pricing, Productivity Down, Many Not Makin’ Money  State of the industry not all rosy, of course. John noted some negatives.  Pricing has been “weak” across the board, with increases mostly coming from trading up/mix, not front line increases.  Lotsa new producers “not making money,” he also pointed out.  And productivity down in the industry as number of new, small players has exploded.  As result, “we’ll see a shakeout” among producers, he believes, tho it remains a “great time to be a consumer.”  At same time, each industry has different concerns.  In wine, there’s possibility of not enuf workers to pick the grapes and vintners face challenge of securing sources for best fruit.  Then there’s pot challenge: prime grape-growing areas yield $350K to $500K/acre.  Standard pot commands $1 mil/acre.  That could “provide some tension,” Steve acknowledged.  Alc bev regulation “outdated,” John declared, which will lead to another kind of “shakeout” on both national and state levels, driven in great part by direct to consumer sales which are “breaking down the 3-tier system.” How that change is managed is “big challenge.” John used term “deregulation” several times, but David and Steve preferred “modernization” and “maturation,” respectively, to describe 3-tier evolution.  In beer, Michael pointed to increasing demand by consumers for more info about ingredients, calories, ABV and more and used that concern to plug Beer Inst’s “voluntary disclosure initiative.”    

“I don’t want to rule beyond the grave,” said Heineken’s Charlene de Carvalho Heineken earlier this week at Fortune’s Most Powerful Women International Summit in London. “I want to let go even before that.” Currently, her oldest son Alexander is on board of Heineken Holding.  Her oldest daughter Louisa and youngest son Charles “also expressed interest in the family business,” noted Fortune.  Charlene considers herself lucky that 3 of her children want to be involved. “It could have been none.” The family’s “succession plan… will be decided in the next year or two,” sez Fortune. “But she did hint that the family will continue in an ownership role, rather than a management one.”  Charlene noted: “My father’s era was different…. It was a small company with real room for an entrepreneur. Now it’s so big, so regulated that I think we can do better from the sidelines, by helping the company grow in a different way.”  Seems to be working out.  Fortune estimated Charlene’s fortune at nearly $15 bil.

Total beer volume dropped 2.2% for 4 weeks thru Jun 4 in IRI multi-outlet + convenience data, reported by Consumer Edge’s Brett Cooper this morn.  AB had especially rough Memorial Day period as its volume dropped 4.5% for 4 weeks.  And its avg prices up only 0.7%.    So it lost 1.2 share of volume and 1.4 of $$ during this period.  MillerCoors volume down 3.1%, but its avg prices down 0.1%.  So  it lost just 0.2 share of volume, but still lost 0.6 share of $$.   Constellation Brands Beer Division volume up 11% with avg prices up 1.3%.  But  Brett breaks out Constellation’s imported and domestic volume (domestic is Ballast Point).  And Ballast Point volume down 9% for 4 weeks.  In all, Constellation gained 1.1 share of volume, 1.4 of $$ for 4 weeks thru Jun 4 in IRI MULC.   Boston Beer also continued to experience significant declines.  Volume and $$ down about 7% for 4 weeks.  So its avg prices about flat (up 0.2%).  And finally Heineken volume down 2.8% for 4 weeks thru Jun 4 in IRI MULC and its avg prices up 1.1%.   With 4 of 5 suppliers down 3% or more, and no supplier averaging more than 1% in pricing (rounded),  in all this is not a very pretty picture for any of these companies, except Constellation. And that’s way it’s been so far in 2017.

Brett also updated his forecasts for 2d qtr beer company depletions based on latest IRI softening.  Brett now expects AB volume will be down 3.5% in Q2, MC down 2.5%, Boston Beer down 7.5% and Craft Brew Alliance will be down 3%.   Only Constellation depletions expected to be up 10% for qtr.